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Human Capital Management during COVID-19: Finding Innovative Alternatives to Layoffs

Businesses are struggling during the extremely volatile period resulting from the global COVID-19 pandemic. The Conference Board predicts a deep contraction in Q2 and has a scenario of even extended economic weakness in Q3, suggesting that organizations should prepare for these worst-case scenarios, which have high probability. As some businesses shut down to slow the spread of the virus, many more have started various cost-cutting measures, and layoffs are often one of the first.

However, despite relieving financial burdens temporarily, layoffs affect organizations negatively in many ways, some of which can be profound and lasting. Previous research shows that layoffs generally don’t increase financial performance or stock price of the company beyond one to two quarters.1 Instead, they often result in negative outcomes such as loss of skills, learning, productivity, and innovation; low employee morale; and brand reputational risks.2 As jobs are the critical factor in consumer confidence and essential for economic recovery, organizations that have laid off employees will have a harder time rebounding as they try to rehire employees.3 Having seen the pitfalls of layoffs conducted during the Great Recession, CEOs of many companies (e.g., Morgan Stanley, Citigroup, Visa, FedEx, Bank of America) have taken a stand and committed to not conducting layoffs.4

The Conference Board suggests organizations facing financial challenges during this pandemic look at layoffs only as a last resort. Instead, companies should consider these 11 alternative strategies before downsizing:

  1. Conduct scenario planning early. As the future of COVID-19 is highly unpredictable, organizations should develop different scenarios to help inform both short-term and long-term workforce plans (see The Conference Board’s COVID-19 economic scenario analysis here). Realizing each functional area or business unit will be affected differently by the pandemic, a US insurance company is taking an enterprise-wide view to handle scenario planning.
  2. Reduce all nonessential costs. Organizations should identify all possible ways to eliminate or suspend discretionary expenses, including canceling nonessential travel, moving in-person training to online formats, reducing company investments, renegotiating contracts with vendors, and so on. For example, cost-cutting suggestions for hospitality include temporarily closing unused parts of hotels, reducing energy expenditures, and/or converting hotels into overflow hospitals.5
  3. Consider alternative sources of worker pay. Governments across the world are beginning to bail out those sectors hit hardest by COVID-19 (e.g., airlines, hospitality). In the US, the recently passed CARES government stimulus bill provides an available pool of funds totaling $500 billion to corporations and nearly $350 billion for small businesses with fewer than 500 employees. Part of the loans will be forgiven if employers don’t conduct layoffs for eight weeks after the loans are approved.6
  4. Freeze nonessential hiring. It’s common for organizations to stop hiring for nonessential positions during economic downturns. In preparation for the harsh economic impacts of COVID-19, a vast majority of companies have decided to freeze hiring across the entire company.
  5. Defer merit pay raises, promotions, and future discretionary compensation. Postponing merit-based salary increases and promotions is one of the most immediate and common measures organizations can take in response to their revenue decline during the crisis. Many organizations that defer pay increases also drive down future people costs by suspending discretionary compensation (such as bonus, commissions) and benefits (such as retirement matches).
  6. Take advantage of paid time off (PTO) benefits. A number of organizations encourage employees who cannot work from home to use PTO benefits (e.g., vacation, sick days) for their absence as a way of avoiding or at least delaying furloughs or layoffs. A global chemical company is launching a PTO donation program, enabling employees to donate their vacation days to colleagues who have exhausted their PTO. Another global manufacturing company is asking all of its employees to take a week’s vacation now to help save costs in the long term.
  7. Reduce pay temporarily. Implement temporary base pay reduction for all employees, either through sweeping salary cuts or shortened workweeks. Often, pay cuts for executives are more aggressive than for others. Multiple CEOs from severely affected sectors have decided to forgo their salary for the rest of 2020 (e.g., the CEO of Texas Roadhouse is giving up his salary and bonus in 2020 and using the funds to pay his frontline workers).7 Executives should lead by example by lowering their compensation before reducing employee pay. If possible, assure employees that they will receive their lost pay within a certain timeframe. While announcing a temporary 20 percent pay reduction for salaried workers, General Motors promised to repay the affected employees in a lump sum with interest by March 15, 2021.8
  8. Embrace job sharing. Because they allow employers to cut work hours rather than lay off employees, short-term work-sharing programs are well targeted for temporary economic disruptions such as COVID-19. At a multinational energy company, many employees suggested implementing job sharing across all plants to share the pain.
  9. Encourage voluntary leave or early retirement. Voluntary leave programs help alleviate financial problems immediately. In just a few days, Delta received over 10,000 employee petitions to voluntarily take unpaid temporary leave.A global manufacturer has implemented a voluntary reduced work schedule option through an existing transitional work arrangement program. Another company is encouraging voluntary one- to three-month sabbaticals without pay but with health benefits covered.
  10. Consider short furloughs with benefits. Organizations that need to close temporarily should consider implementing short furloughs with benefits to be positioned for a quicker restart when the upswing begins, especially in sectors where it is often difficult to find employees. To prevent permanent job losses, Hilton just announced that it was furloughing many employees, who would then receive benefits and access to more than 500,000 temporary jobs at more than 30 companies, including Amazon, CVS, Albertsons, and Walgreens.10 Companies should provide information about unemployment to the furloughed workers who may not realize they’re eligible.
  11. Get creative. Organizations should ask their employees what other measures could be taken to help prevent layoffs and reduce costs. For example, during the 2008 financial crisis, Beth Israel Deaconess Medical Center received positive employee comments when leveraging crowdsourcing for cost-cutting measures. Before initiating the crowdsourcing process, senior leaders held virtual town halls to update employees on the financial health of the company and articulated the crowdsourcing objectives and criteria.11
 

This report is part of the larger Human Capital Management during COVID-19 series created by The Conference Board to help HC leaders navigate the effects of the pandemic with their employees. The series reflects not only the latest research (ours and others') but also the comments and insights from our Members as they address this unprecedented challenge. To see the other reports in the series, visit The Conference Board COVID-19 Pandemic Resources & Support for the Human Capital Community.

 

 

Related Resources



1 Kenneth De Meuse, Thomas Bergmann, Paul Vanderheiden, and Catherine Roraff, “New Evidence regarding Organizational Downsizing and a Firm’s Financial Performance: A Long-Term Analysis,” Journal of Managerial Issues 16, no. 2 (2004): 155–177.

2 Robin Adair Erickson, "Here Today But What about Tomorrow? Reducing the Attrition of Downsizing Survivors by Increasing Their Organizational Commitment," unpublished PhD dissertation, Northwestern University, 2007.

3 Steve Odland, “We Need to Prevent Layoffs or All Bets Are Off to Avoid a Recession,” CNBC (video), March 17, 2020; Sandra J. Sucher and Shalene Gupta, “Layoffs That Don’t Break Your Company,” Harvard Business Review, May-June 2018.

4 Jack Kelly, “CEOs are Cutting Their Own Salaries in Response to the Coronavirus,” Forbes, March 30, 2020.

5 Nicole Dehler, “COVID-19 and Hospitality: 7 Alternative Ways to Cut Costs and Save Your Business before Resorting to Layoffs,” Hospitality Net, March 26, 2020.

6 Emily Flitter, “Small Businesses Will Get Help Paying Workers, if They Can Wait,” New York Times, March 26, 2020.

7 Michael Ruiz, “Texas Roadhouse CEO Forgoes Salary for 1 Year to Pay Workers Amid Coronavirus: Reports,” Fox News, March 27, 2020.

8 Michael Wayland, “GM Temporarily Cuts Pay by 20% for 69,000 Salaried Workers amid Coronavirus Pandemic,” CNBC, March 26, 2020.

9 Kelly Yamanouchi, “Delta Airline’s Share Price Plunges 26% Wednesday,” Atlanta Airport Blog, March 18, 2020.

10 Donna M. Airoldi, “Hilton to Furlough Employees, Reduce Salaries,” Business Travel News, March 26, 2020.

11 Atta Tarki, Paul Levy, and Jeff Weiss, “The Coronavirus Crisis Doesn’t Have to Lead to Layoffs,” Harvard Business Review, March 20, 2020.

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Robin Erickson, PhD

Principal Researcher
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Amy Ye

Researcher, Human Capital
The Conference Board

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